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What’s a Residential Demand Charge?

Wondering what a residential demand charge is and if you should switch electric rates? Check out our new infographic! If you have comments or questions, please share them below.

Wait, TEP is Proposing More Anti-Solar Rates!?

Maybe you’re someone who checks every utility bill insert. Or maybe you just can’t get enough of the legal notices in the back of the newspaper. But if you aren’t “that guy” (or gal), you might not know that Tucson Electric Power is yet again proposing changes to rates around solar in the second phase of their rate case.

Forgive us for sharing the same narrative that’s been true for a number of years, but yes—these proposals are bad for Tucsonans who want to install solar on their own homes, but good for TEP’s proposed company-owned solar, and great for TEP’s profits.

First, some good news. The Arizona Corporation Commission (ACC) has made clear that they support “grandfathering” of net metering for existing solar customers, which will apply based on the date of the decision in this second phase of TEP’s rate case. So if you’re thinking about solar, there’s still a little time to get it installed under the current rules.

Net metering rides into the sunset

As we’ve shared before, net metering for new customers will be phased out, as each utility completes their rate cases. For Trico customers, net metering is already gone. TEP, UNS Electric, and SSVEC customers will have net metering available until phase two of each rate case concludes.

So what will replace net metering? A “DG export rate.” This rate, which is expected to be somewhere between 7-12 cents per kWh for TEP, will apply to any energy that a solar homeowner sends to TEP. For any solar electricity energy that you use as it is generated, you’ll save money at the retail rate. This means that TEP customers who install solar after net metering is gone could lose 30% or more of the value of a solar electric system compared to current rates. The amount of lost savings is highly dependent on a homeowner’s specific energy use patterns.

Proposed rates are more complex

TEP is proposing that new  “distributed generation” or “DG” customers—those who produce their own energy at their homes—must be on one of two specific rates.

The first proposed is a time-of-use rate. In addition to a monthly service charge of $13, you’d pay more for electricity during certain hours. For example, in the summer, the peak is from 3:00pm-7:00pm, and you would pay about fourteen cents per kWh under the proposal, while you’d pay just under ten cents per kWh during off-peak.

TEP's proposed summer time-of-use rate for new solar customers.
TEP’s proposed summer time-of-use rate for new solar customers.

In the winter, the proposed difference between peak and off-peak pricing is less, with off-peak a little under ten cents per kWh, and peak pricing a little more than ten cents per kWh. In winter, the peak period would be from 6:00am-9:00am and from 6:00pm-9:00pm.

TEP's proposed winter time-of-use rates for new solar customers.
TEP’s proposed winter time-of-use rates for new solar customers.

Time-of-use rates are generally designed to incentivize energy use in the off-peak time, when it’s cheaper for TEP to generate or purchase energy. For example, you might want to wait until after seven to start the washing machine, dryer, or other large loads during the summer.

Of course, some loads just can’t wait. You’ll probably need to run your air conditioner when you get home, whether it’s a bit expensive to do so or not. Similarly, it’s not usually practical to wait to cook dinner.

To add insult to injury, TEP is also proposing a new “Grid Access Charge” for those on this rate option. This charge would be based on the size of the installed solar electric system, and would apply to each month’s bill.  TEP says this is because solar customers “avoid paying their share” of the cost of the grid (though this conclusion is dubious).  This charge is proposed to be a whopping $3.50 per month per kW of solar electric system size. So for a fairly typical 8 kW solar electric system, you’d be paying an additional monthly charge of $28.00!

The second proposed rate option for solar customers also has a time-of-use component for your energy costs, and maintains the basic service charge of $13. But it adds another wrinkle: a demand charge. A demand charge is a charge based on the maximum amount of energy you use over a short period of time. In TEP’s proposal, they would measure your energy use over each hour during the month, and would bill you based on the maximum energy use over a one-hour period during peak time. For example, in my modest 1,100 square foot home with a relatively small 3.55 kW solar electric system, my maximum 1-hour peak use was 7.21 kW last August. If I were on that proposed rate, I’d pay $84.34 just in demand charges for that month, not to mention all the other charges!

Energy production and use for my home on August 11th, 2016. My highest 1-hour usage was between 7:00-8:00pm, and was caused by running my air conditioner (about 5kW) and my oven/stove (about 3kW).
Energy production and use for my home on August 11th, 2016. My highest 1-hour usage was between 7:00-8:00pm, and was caused by running my air conditioner (about 5kW) and my oven/stove (about 3kW).

Both of these rates increase the complexity of the decision to install solar on your home. It’s not too tough to understand and react to time-of-use rates. But demand rates are much more challenging for consumers to react to, and it’s more difficult to model estimated savings from solar, energy efficiency, or other technologies.

More meter fees

TEP has also proposed a new meter charge for solar customers. Back in February, the Arizona Corporation Commission approved a new $2.05/month charge for solar customers, due to the greater cost of the specialized meter needed to record energy flowing both to and from the grid. Although we aren’t exactly happy about this solar-specific surcharge, it does seem to be a reasonable amount to cover the costs incurred by TEP. And customers have the option of just buying the meter up-front, for $142.95.

Now, TEP is adding another wrinkle: They want to raise the meter charge to $4.32 each month! They claim this is due to the fact that TEP chooses to install a solar production meter, plus they say that billing costs increase significantly for solar customers. But the thing is, the solar production meter actually doesn’t provide any benefit to solar customer. Each solar electric system we install includes Enphase Energy’s monitoring solution, which accurately records both the energy output from your system and the amount of energy you use in your home, and makes this data available to you on a user-friendly portal in near real-time. The solar production meter does benefit TEP though, since they can use that meter to keep track of system performance, and can use the data to confirm compliance with ACC policy.

Help keep solar an option for everyone, like this Tucson family who installed a solar electric system on their mid-town home
Help keep solar an option for everyone, like this Tucson family who installed a solar electric system on their mid-town home!

It’s time to tell TEP to back off on their anti-solar proposals

So there you have it. Net metering on the way out. Complicated demand charges or punitive solar-specific rates. Fees for metering infrastructure that solar customers don’t need. And it all seems to be calibrated to make it harder for TEP customers to choose to produce some of their own energy on their homes. This flood of poorly-considered anti-solar policies needs to be stopped. The ACC and TEP need to hear from folks who love their solar, and the ability to choose their energy sources. We also really encourage people who are thinking of installing solar in the future to participate in the process, since your ability to go solar will be greatly reduced under these proposals.

Hearings will start with public comment on Monday, June 26th (see below for specifics) and could continue through mid-July. After the hearings are complete, the administrative law judge in the case will complete a recommended order, which will go to the full ACC for their decision. It’s likely this final decision will be made in early fall, but the exact schedule may change.

How to take action:

Give public comment at the Commission on June 26th, starting at 10:00am. The hearing will be held at the ACC’s offices here in Tucson. The address is 400 West Congress, Room 222, Tucson, Arizona, 85701. Over the coming weeks, we’ll share more specifics about the proposals, if you’d like help with some possible points to bring up in your public comments. Or feel free to contact us with questions.

Submit a public comment opposing these anti-solar rates. You can comment online, at, referencing Docket 01933A-15-0322. You can also mail a comment referencing the same docket number to:

Arizona Corporation Commission
Docket Control Center
1200 West Washington
Phoenix, AZ  85007

Spread the word. Let your friends and family know about how these proposed rates could affect them, and how they would hurt local small businesses like Net Zero Solar.

If you have thoughts or questions, we’d love to hear them in the comments!

What Does the End of Net Metering in Arizona Mean for Small Solar Installers?

(This post is reproduced from Originally published January 19th, 2017)

It’s been almost a month since the Arizona Corporation Commission concluded their investigation into the value and cost of distributed generation by voting 4–1 to end net metering as we know it.

The simple policy of one-to-one credit of net metering will be replaced with a scheme that includes no banking of energy credits, and a steadily-dropping compensation for any energy that homeowners send back to the grid.

As you might imagine, at Net Zero Solar, we’ve been keenly discussing what this means for solar in the state, and particularly for small rooftop solar installers like us.

The basics

The decision replaces the current net metering policy implemented by the ACC in 2009. Under the decision, rooftop solar customers will receive full retail rate benefits from energy that they produce and use at the same time, but any distributed generation will be credited at a lower rate. Initially, this lower rate will be based on the price of utility-scale solar plants.

The specific export rate for each utility will be set in each rate case. Some utilities have already completed the first phase of these rate cases. Issues related to rooftop solar will be addressed in the second half of these cases. When a customer installs solar under the new scheme, they will be “locked in” at a specific export rate for ten years.

Consumers who already have solar will be “grandfathered” for twenty years from the date their solar was installed. The Commission also clarified their December decision. A customer who submits an application with their utility to install solar will be grandfathered, as long as they apply before the conclusion of their utility’s rate case.

Solar installers will need to be leaner

The solar industry has a well-documented record of reducing their prices to consumers over the years. Much of this has been driven by aggressive reductions in module and other component costs by manufacturers. But many rooftop solar installers have also worked to lower the “soft costs” of solar, such as customer acquisition, labor, permitting, and so on.

Small installers are going to need to continue this trend, while still providing excellent products and service. Improving process and efficiency will be critical, but improvements can’t be too expensive.

Distributors will need to understand the challenges faced by installers, and provide not only product, but also share insights on industry trends and engage in state-level policy discussions.

To keep the simple payback for cash purchasers to ten years or less under the new scheme, I estimate installers will need to reduce residential installed costs by between 4-15% per year, but outcomes of utility rate cases could shift this in either direction. This will particularly put increased pressure on customer acquisition costs, and will make loan and lease products very tough (if not impossible) to justify economically.

Storage won’t save us (yet)

During the hearing, some regulators made ill-informed statements implying that solar installers needed to become competitive, and that the ending of net metering would incentivize storage. (Of course, it’s rather ironic that regulators would hector an industry that has consistently become more efficient over its short lifetime, while protecting the profits of highly-uncompetitive utilities with stagnant business models).

While we have a long history working with energy storage at Net Zero Solar, and are excited for storage for the long term, it is in no way a cost-effective solution for today. With total lifetime costs for various lithium chemistry batteries in the range 20–30¢ per cycled kilowatt-hour, it just doesn’t pencil out.

With a retail cost for electricity of around 10¢, and the initial export rate expected to be in the order of 7¢, it would be foolish to spend 20¢ per kWh to store energy that’s only worth 3¢ per kWh (the difference between retail rates and export rates). As the excess generation rate declines toward the avoided over time, it may make sense for consumer to store their energy. But unless our our generally low energy prices in Arizona increase dramatically, storage costs would need to be 25–50% of their current levels to make economic sense.

Claiming cuts to net metering will incentivize storage in Arizona in the near term makes as much sense as claiming that if you crush my old Toyota pickup, I’m sure to go out and buy a Mercedes sedan. It’s not going to happen.

Over the long term, I expect storage costs will decline. And there is value in designing systems today that will easily incorporate storage, load control, and other advanced energy technologies in the future, such as the Enphase Home Energy Solution.

Some customers will chose to do storage soon anyway — just because they think the technology is cool, or they dislike utilities, or like the independence. But this will be a few early adopters, not a major part of the marketplace.

Installers will need to up their game with modeling, storage, load control, and other building management technologies

It’s reasonably trivial to calculate the financial benefits from a net-metered residential solar electric system with two-part rates, as long as you have monthly energy usage data and can accurately model monthly energy output from the system.

With no banking of energy credits, and a differing rate for imports and exports, things get more difficult. Solar installers will need to obtain detailed energy use data for potential clients, and predict each energy flow on a second-by-second basis to understand financial payback, since maximum self-consumption will produce maximum financial benefit. This will force installers to get more savvy with energy modeling, and become proficient software such as Energy Toolbase.

Load control and other building management strategies will also play a key part. From sales through installation and follow-up, employees at installers will need to be able to offer integrated solutions that are easy for the consumer to understand and implement.

Customers will have to accept more uncertainty

With this decision, consumers will have to accept more uncertainty regarding the financial payback for their systems. First, they will only be assured of a fixed export rate for ten years from the date of interconnection. After that, exported energy may be worth as little as avoided cost. I hope that by that time, costs will decrease enough make storage installation economically feasible.

Second, specific energy use patterns will directly affect how much energy is used from solar as it is produced, and how much is sent back to the grid at a lower compensation level. For example, a consumer who leaves town for a month and turns off all electric loads will receive only the export rate for all energy produced during that time.

Utility Death Spiral? Not So Much

Arizona’s utilities are the clear winners in this decision. They have managed to stave off some of the relatively minor competition posed by the rooftop solar industry, while putting forth the unreal narrative that solar customers are “cost-shifting” to other customers. All from an industry that enjoys monopoly protections, a guaranteed rate of return, and in the case of Arizona Public Service, spends millions electing their preferred regulators.

Utilities will continue to accelerate implementation of utility-scale solar and other renewables that they can monetize, and generally advocate policies that dis-incentivize customer-owned rooftop solar.

What’s our narrative?

As we move into a new energy policy era in Arizona, it will be important to tell a clear and compelling story about our energy future. Consumers need to know that their solar installer is taking all necessary steps to meet the challenges ahead.

Even with this significant setback, I believe rooftop solar will still be an important part of Arizona’s energy mix. Clean energy choices, storage, and new energy management solutions are exciting! Small business and local jobs are critical to keeping our economy strong.

Have thoughts on the future of rooftop solar in Arizona? Please share them below.